Incoming damage is calculated, and able to be seen, individually (no hiding that you were in the fire). It then feeds into a larger, combined health pool. Overall damage taken in unchanged. If the entire raid takes damage, then the proportional spike is as big as ever. If a particular player takes damage, just as much healing is needed. But, the spikes that hit individual players are proportionally smaller relative to the health pool, giving more time to deal with such things. More importantly, this cuts the number of health bars to deal with by 80%. Now the 25-man raid has as many health bars as a five-man instance.

This actually isn't of any help at all with the AoE damage. As for AoE healing, healing would be based on the pools, not the players, so AoE heals are only hitting five pools at most. If a raid is physically split up in any way, an AoE heal might only hit a single pool. If anything, this makes AoE heals less useful relative to targeted.

Combat logs would still display the individual damage. In the raid UI, the hits could register on individual portraits. Finally, add to the base raid UI a toggle to show total damage taken per encounter.